Although providers of SMS loans charge up to 1,000 percent a year in interest, almost one in every ten Estonians has applied for such a loan. Eesti Päevaleht writes that the SMS loan business is about to become the most lucrative business for loan providers that expect their business to grow at least 20 percent a year.

“This is a medical problem,” says Marje Josing, head of the Estonian Institute of Economic Research EKI, adding that it seems that Estonians have no economic sense and cannot calculate the skyhigh interest amount.

It only two years since that the first companies started to offer SMS loans in Estonia this has grown into a business worth at least a billion kroons.

“The results of the first three months allow me to believe that we will issue at least twenty percent more loans this year,” said Aare Sosaar, CEO of market leader SMS Laen. He added that the business is growing so rapidly that it is very difficult to make any forecasts.

It is believed that the market share of SMS Laen is more than 50 percent in Estonia. There are about ten companies offering SMS loans in Estonia today.

Since about 10 percent of the people who have taken an SMS loan have problems in repaying the debt, this means that also debt collection agencies have plenty of business.

“The number of small borrowers in trouble is increasing,” confirms Jaanus Laidvee from debt collection agency Julianus Inkasso. In average, customers in trouble owe between 20,000 and 25,000 kroons.

Despite the mounting inflation and economic shake-ups, Latvia’s business sector keeps developing and expanding. The first billionaire company appeared in Latvia last year, NowoNews mediates The Telegraph.

Latvian inflation and energy prices have made the Estonian businesses in Latvia fear the worst: possible devaluation of the Latvian lat. Most Estonian businessman with business in Latvia interviewed by Äripäev were extremely worried about the fact that the inflation in Latvia is 16.8 pct, electricity prices have gone up 37 pct and gas prices 50 pct.

Estonian businessmen say they do what they can to factor in the black scenario, but say that the devaluation of any Baltic currency would have disastrous repercussions in all three Baltic countries.
Erkki Raasuke, chairman of Hansapanga Group, said that the bank has never ruled out the possibility of devaluation. “However, in our opinion its probability is still low. It is hard to say how the problem is finally solved, but it is clear that if the country starts to cool down its economy later, it will be a bigger shock. Latvia needs to understand that it must do something to avoid the worst,” said Raasuke.

“In principle, our Finnish owners have considered this possibility since such high inflation cannot continue forever,” says Anne Mere, CEO of Rakvere Lihakombinaat. “It is clear that foreign investors who tend to look at all three Baltic counties together have already become more cautious,” she added.

Ruth Laatre from retail giant Rimi Baltic said that devaluation would hit all business. “However, it seems that Latvians are to proud to admit that the devaluation risk is real and prefer to say that this is something that foreign companies have blown out of proportion.

Vallot Mangus, CEO of Tartu Maja Betoontooded that recently opened a concrete plant in Latvia says that the company has hedged its risks and is not going to make new investments in Latvia. “If devaluation happens, its impact would be catastrophic to all other Baltic states,” he said.

“It is impossible for Latvia to continue like this, spending more than it makes. The economy is overheated and the country must slow down rapidly or devalue, perhaps both,” said Joakim Helenius, owner of investment bank Trigon Capital.

Some businessmen had more positive views. Janek Kalvi, CEO of Liviko, a distillery, said that the devaluation is too pessimistic solution. “I hope that the Latvian government and central bank will do everything to avoid devaluation since it would be a disaster for the whole region,” he said.

According to Statistics Estonia, the industrial production in March 2008 decreased compared to February as well as compared to March of the previous year.

In March 2008, the seasonally adjusted industrial production of Estonia fell 5% compared to February.

In comparison with March of the previous year, the industrial production decreased 5%, in manufacturing 3%. The decrease in manufacturing was mainly influenced by the decrease in the production of food, wood and building materials. The manufacturing of food is continually affected by price increase. In March the prices rose about 20% compared to March of the previous year, in the manufacturing of milk products the increase was about 40%. The decrease in the production of beverages was also affected by the raise of excise taxes which significantly decreased the sale of strong alcoholic beverages. Compared to March of the previous year, the production of building materials fell 20% in connection with a slowdown in construction activities. The downward trend continued in the manufacturing of wood, the production of furniture also decreased.

Compared to March of the previous year, there was a growth in the production of metal products, chemicals and electrical machinery, mainly due to the increase in exports. The share of exports in the manufacturing of chemicals and electrical machinery was over 85%. The share of exports in the total manufacturing has been growing continuously and exceeded 60%.

In March 2008, compared to March of the previous year, the production of electricity decreased 24%, the production of heat increased 6%. The decrease in electricity production was caused by the fall in exports and partly replacement of own production with imports. In March about 30% of electricity was imported, in February the imports accounted only for slightly over 1% of consumption.

The trend of volume index of production in manufacturing, January 1998 – March 2008(2000 = 100)

Change in volume index of industrial production, March 2008(percentage)

Economic activity

Change compared to
previous month
according to
seasonally adjusted
dataa

Change compared to corresponding
month of previous year

according to
unadjusted data

according to
working-day
adjusted datab

TOTAL

-5.3

-10.7

-4.9

Energy production

-7.5

-13.9

-13.9

Mining

-5.2

-11.5

0.8

Manufacturing

-4.6

-10.1

-3.2

manufacture of food products and beverages

-1.7

-8.3

-6.6

manufacture of wood and wood products

-12.8

-25.9

-17.8

manufacture of fabricated metal products

-1.5

5.2

9.1

manufacture of electrical machinery

-0.7

-0.9

11.5

manufacture of building materials

-3.2

-27.9

-19.5

manufacture of chemicals and chemical products

-9.0

9.4

12.2

manufacture of furniture; manufacturing not
elsewhere classified

-5.8

-19.5

-12.0

manufacture of radio, television and communication
equipment and apparatus

-24.8

-6.5

-6.5

manufacture of textiles

-24.3

-19.5

-16.7

a In case of the seasonally adjusted volume index, the impact of the differing numbers of working days in a month and seasonally recurring factors has been eliminated. It is calculated only in comparison with the previous period.b In the case of the working-day adjusted volume index, the impact of the differing number of working days in a month has been eliminated. It is calculated only in comparison with the corresponding period of the previous year.